BOE: Balance Sheet Size Falls; But Set to Pick Up Again Next Week

Treasury's bill auction sizes for this week were unexpectedly upped: 4-week by $5B to a record $105B, 8-week also by $5B to a joint-record $90B, and 4-month by $2B to a record $67B. See chart below for size history.

• Instead of raising $5B in net cash if they had been unchanged, these will raise $17B on next Tuesday Oct 7's settlement.
• Most expectations we'd seen were for bill sizes to remain relatively steady until later in October so this is coming a little early.
• While it's not clear this was the reasoning, Treasury's TGA cash position had been seen as a little weaker than had been expected in September, and likely to fall short of the $850B targeted for today's end-quarter date (was $786B as of the last Treasury statement date on Sept 26).

• +15,000 SFRZ5 96.75 calls, 1.75 ref 96.31
• -12,000 SFRX5 96.12/96.62 strangles, 1.75-2.0

• Deputy Governor Sarah Breeden rarely speaks on monetary policy but her speech scheduled for today at 16:30BST at Cardiff University is provisionally entitled “The Monetary Policy Outlook”.
• This will certainly be a key speech. She sounded slightly more dovish than Governor Bailey in our view following her testimony ahead of the TSC on 3 June but hasn’t really spoken on monetary policy since.
• Her tone is likely to be pivotal for markets, particularly if she strikes a dovish tone given current market pricing.
• We think that markets are underpricing the probability of a Q4 cut with less than 1bp priced for November and less than 5bp cumulatively priced for December.
• Note that yesterday, Deputy Governor Ramsden did not rule out voting for a cut in November but was generally considered the most dovish member to not dissent at the September MPC meeting. In order to reach the five members needed for a cut we would need the two September dissenters (Dhingra and Taylor) and then likely all of Ramsden, Breeden and Bailey. That leaves the four members who hawkishly dissented in August continuing to favour a skip.